Today, the Illinois Supreme Court issued a 6-1 opinion holding that the state’s “click-through” nexus law or “Amazon tax” is invalid. The underlying law was passed in 2011 when brick-and-mortar retailers in Illinois called on the state legislature to “level the playing field” and cause out-of state retailers to collect and remit sales tax on their sales to Illinois customers.
In Illinois, any retailer “maintaining a place of business in this state” is legally required to collect and remit sales tax. The underlying law in this case made it so “maintaining a place of business in this state” includes: a retailer having a contract with a person located in this State under which the person, for a commission or other consideration based upon the sale of tangible personal property by the retailer, directly or indirectly refers potential customer to the retailer by a link of the person’s Internet website. Pub. Act 96-1544, §5.
This state law drove CouponCabin.com, FatWallet.com and other Illinois-based Internet marketers to relocate to other states, recognizing that this law would create nexus for their clients. The court noted that other types of “performance marketing,” whether engaged in through print media or over-the-air broadcasting, did not give rise to tax obligations under the Illinois law. Therefore, the court reasoned, this law is a discriminatory tax on electronic commerce within the meaning of federal law and is therefore preempted. The Multistate Tax Update previously covered New York’s highest court ruling on a similar New York law where the court ultimately upheld the law, which will likely rouse debate on the validity of such laws and calls for U.S. Supreme Court challenges.